Google’s Gamble

Google, the internet search engine giant which Americans currently use for 70% of the 17.6 billion internet searches they perform each year, is playing defense using a strategy that is a dangerous gamble. The folks at Google may not even realize it, but they’re betting the farm.

The Federal Trade Commission, the states, the European Union and scores of private plaintiffs have been investigating Google for violating the antitrust laws. The principal allegation is that Google uses its dominant position in search to favor its own businesses by manipulating search results to the disadvantage of Google’s rivals, often to the point of their demise.

Google has hired Neal Katyal, a partner in the Washington, D.C. law firm of Hogan Lovells. Katyal led the charge for the Obama administration as the former Acting Solicitor General to fast-track the constitutional dispute over health care reform, lawyering for it to reach the Supreme Court early so the Court could constitutionally approve it well before the election. He was also the architect of the “method of payment” argument in support of the health insurance mandate, the idea that the mandate is an alternate method of payment for services that will be consumed anyway, whether there is a mandate or not. This argument, when it was delivered by Solicitor General Don Varrelli, seemed too clever by half. What called for a razor sharp distinction between Justice Scalia’s broccoli and the availability of health care was met instead with a convoluted explanation that came down to nothing more than broccoli is a “thing” and insurance is a “means of payment.” So what?

On a recent June afternoon at the American Antitrust Institute annual conference held at the National Press Club in Washington, D.C., Mr. Katyal was at it again. He prefaced his remarks with this: “I just want to be very clear about my role here. I am here … my law firm Hogan Lovells has been retained by Google and I’m here in that capacity … I will be tentative and talk about the First Amendment as I think a constraint on search engines and my remarks have not been cleared by anyone. Google hasn’t seen them.” Unfortunately, instead of making it “very clear,” I wasn’t sure from the outset if I was listening to Google’s legal counsel or the un-cleared, “tentative” remarks of Professor Katyal.

Google might want to hope it’s the latter. What followed did not acquit the company well. If Mr. Katyal’s remarks (audio is available at http://www.antitrustinstitute.org) constitute Google’s legal position the company may be taking a gamble with its brand and goodwill that its own executives may not even realize.

Mr. Katyal began his remarks by answering the question, Are search results like newspapers? “No,” he said. Search results could not simply be compared to newspapers. Nonetheless, the content in each was a matter of the editorial judgment of the publishers. It didn’t matter, moreover, that the editors of the search result pages relied on an algorithm while the editors of a newspaper did not. The difference would not be “constitutionally dispositive.” So, in fact, search results are like newspapers. Mr. Katyal could have saved himself the trouble of describing to an audience of Washington think-tank types what a search results page looks like and what a newspaper looks like and simply answered “yes” to the question in the first place. Nonetheless, if any more persuading that search results were protected speech were needed, Mr. Katyal told the audience, consult the Google-commissioned white paper by Eugene Volokh and Donald Falk who argue precisely that.

For the audience at the antitrust conference the important thing was that the status of search results as Google’s opinion has certain damning consequences for the FTC and anyone else who might want to attempt to bring the antitrust laws to bear on Google’s activity in search. First of all, defining a market is “not easy” when the “market is based on speech.” Of course, exceptions exist for speech that amounts to price fixing. And where speech has been the product in other antitrust proceedings there is always a “physical constraint,” like newspapers or telecommunications, constraints that “are not applicable to search.”

Establishing that Google engaged in any “coercive” conduct in the market will also be difficult, Mr. Kaytal said, because “the pure act of speech” is so hard to show as coercive. “Speech contains only the power to persuade; coercion requires something more.” Search results “can’t be anticompetitive as a matter of law” and the government will have a hard time proving that any market can be monopolized by the “act of speaking.” An “opinion that some pages might be helpful doesn’t force me to visit any of them.”

This is nothing new, supposedly. The First Amendment places limits on antitrust when it protects one petitioning the government, even for an anticompetitive outcome. This, Mr. Katyal said, is because such speech “comes too close to the First Amendment.” Whether it’s Section 2 of the Sherman Act or Section 5 of the FTC Act, “the First Amendment makes is very difficult to punish speech as an unfair practice.” Just look at all of tort law where opinions can’t be the basis of commercial torts because the First Amendment “protects subjectivity.” And most of the time that someone is complaining about an unfair practice, Mr. Katyal asserted, it’s the expression of an opinion. Any case the FTC might want to bring would boil down to “expressing a particular opinion in a particular way is unfair.”

Finally, the First Amendment also constrains the ability of an antitrust court to fashion a remedy related to search results. Government lawyering involves “thinking hard about what you want to get out of the action.” It’s not clear what the FTC is trying to get out of the investigation, Mr. Katyal said, but it’s “hard to come up with a coherent remedy where there’s no coherent theory of liability.” Moreover, any remedy that seeks to impose “fairness” on search results is not going to pass constitutional muster. “The First Amendment forbids the government from compelling you to express its opinion instead of your own.” In other words, since search results are opinions any remedy would merely be a substitution of the government’s opinions for those of Google and that is forbidden by the constitution.

Back on planet Earth, Kurt Wimmer, a partner at Covington & Burling who represents Microsoft, patiently refuted Mr. Katyal point by outrageous, misleading, and in some cases demonstrably false point. The courts intercede in commercial activities intimately connected with protected speech all the time. Opinions and journalistic freedom are not entitled to the absolute First Amendment protection that Mr. Katyal described. And to Mr. Wimmer’s rebuttal can be added that the “difficulties” Mr. Katyal sees in prosecuting an antitrust action against Google in the search area are an artifact of circular reasoning that starts by assuming that search results represent opinion that the First Amendment places beyond the reach of the government to influence. Moreover, to pull out of thin air that Google search results cannot be “coercive” because they are pure speech—that is, nothing Google can ever do can be anticompetitive—is to ignore the obvious commercial reality that search rankings are extremely important in a very real way to the competitiveness and bottom line of many, many enterprises.

In a society dominated by large corporations legal observers have grown used to high-powered lawyers pressing legal propositions that have little or no connection to reality. When advocates like Mr. Katyal are brought in the client usually knows what it’s getting. For many companies not as high profile or as deeply connected to daily life as Google, principle and coherence can be expendable in the service of a winning legal argument. But Google is not ExxonMobil. Its success is tied up in its users’ perception of them perhaps more than any other successful company—as much or more than Boeing, whose planes we fly in, or Nestles, whose formula we feed our babies. Can Google afford to take a self-satisfied and bombastic legal position in which it claims to be shielded should it choose to to undermine competition rather than serve the interests of its users? This is the outsized and, in my view, entirely unnecessary gamble Google has apparently decided to take.

Time was, about a year ago, before Professor Volokh and Mr. Katyal popped up,  Google’s defense to the allegations of anticompetitive manipulation of its search results was simple and appealing: it doesn’t do it. And for a simple reason. The moment Google stops giving its users what it thinks its users want and starts giving them what Google wants to give them, Google’s competitive advantage and goodwill will begin to erode. After all, the price of search is zero, and the only way to retain market share when your customers pay nothing is to keep giving them what they want.

I suspect that Google users would tolerate quite a lot of legal wrangling by the company if the point is to establish that Google’s search algorithms are motivated by user demand rather than the company’s own interests. What they are not likely to tolerate is the kind of First Amendment absolutism born out of a right-wing, anti-government ideology in which consumers are best served only when commercial enterprises are allowed to do exactly as they please.

Perhaps the folks at Google might want to call the White House and find out how well Mr. Katyal’s legal strategy on the health care legislation is working for them. From his perch somewhere in an alternative universe the constitutionality of the Affordable Care Act apparently seemed so self-evident that rushing to the Supreme Court for quick approval was the best legal strategy available. With much of the same hubris and perhaps even more ad hoc and self-justifying reasoning, Mr. Katyal may be steering Google toward a similar existential debacle.

What Google possesses and has so far maintained is a level of goodwill, confidence, and trust on the part of consumers that is exceedingly rare for a commercial enterprise. For whatever reason, Google seemed to be driven by incentives that differed from most corporations.  With its latest legal strategy Google is gambling with precisely what made it successful in the first place.

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